Kerevi Ltd leases a machine for making dog crates from the Rennie Bank on 1 July 2020. The lease is for 5 years, payment in advance, and the initial lease payment of $80,000 is required at inception and four payments of $80,000 are required in subsequent years and payable 30 June. The implicit interest rate in the lease is 8% pa. At the end of the lease Kerevi retains the machine which has a useful life of 10 years with a salvage value of $80,000. Unfortunately, during the year ended 30 June 2022 there is less dog travel and there is a fall in the demand for dog crates. At this time, the recoverable amount of the machine s determined to be $180,000. The useful life is now only 5 years and a salvage value of $40,000 is estimated. Kerevi has a 30 June year end. Record the necessary journals for the following dates: 1 July 2020 30 June 2021 30 June 2022
Kerevi Ltd leases a machine for making dog crates from the Rennie Bank on 1 July 2020. The lease is for 5 years, payment in advance, and the initial lease payment of $80,000 is required at inception and four payments of $80,000 are required in subsequent years and payable 30 June. The implicit interest rate in the lease is 8% pa. At the end of the lease Kerevi retains the machine which has a useful life of 10 years with a salvage value of $80,000. Unfortunately, during the year ended 30 June 2022 there is less dog travel and there is a fall in the demand for dog crates. At this time, the recoverable amount of the machine s determined to be $180,000. The useful life is now only 5 years and a salvage value of $40,000 is estimated. Kerevi has a 30 June year end. Record the necessary journals for the following dates: 1 July 2020 30 June 2021 30 June 2022
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Kerevi Ltd leases a machine for making dog crates from the Rennie Bank on 1 July 2020. The lease is for 5 years, payment in advance, and the initial lease payment of $80,000 is required at inception and four payments of $80,000 are required in subsequent years and payable 30 June. The implicit interest rate in the lease is 8% pa. At the end of the lease Kerevi retains the machine which has a useful life of 10 years with a salvage value of $80,000.
Unfortunately, during the year ended 30 June 2022 there is less dog travel and there is a fall in the demand for dog crates. At this time, the recoverable amount of the machine s determined to be $180,000. The useful life is now only 5 years and a salvage value of $40,000 is estimated. Kerevi has a 30 June year end.
Record the necessary journals for the following dates:
1 July 2020
30 June 2021
30 June 2022
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Step 1: Definition of lease:
VIEWStep 2: Working note 1- Calculation of present value of lease payments:
VIEWStep 3: Working note 2- Preparing lease payment schedule up to June 30, 2022:
VIEWStep 4: Preparing journal entries on July 1, 2020:
VIEWStep 5: Preparing journal entries on June 30, 2021:
VIEWStep 6: Preparing the journal entry on July 30, 2022:
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